Life Lessons 101

Everything you needed to know, but was never taught in school.

Financial Freedom Types: Investors

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The third type of financial freedom one normally finds, is in Investing. This is the Warren Buffets of the world, and many more who aren’t quite as famous, but still doing really well for themselves.

The idea of putting your money in a company or other entity by buying stocks and/or bonds, or other type of financial product, in an effort to see a positive return and have your money grow.

This is similar to the idea of putting your money in a savings account earning interest, however because savings accounts pay so little now a days, you have to find other methods.

There are various financial tools you can use for investing. Some have more risk than others. I’ve listed common financial tools from low risk to high risk below. Note that the lower the risk, the lower the reward, and that there is not a direct line from risk to reward, nor is everything risk free.

  • Savings Account
  • Certificate of Deposit
  • Treasury Bonds
  • Municipal Bonds
  • Bonds (high grade)
  • Bonds (junk)
  • Large Cap Stocks
  • Growth Stocks

Note: I didn’t include mutual funds as they are just collections of bonds and/or stocks usually. That means instead of buying a single stock, you buy into a “fund” which has dozens of different stocks. The idea being rarely would they all go up, or all go down. Some will go up, and some will go down, hopefully more positive than negative overall.

How much money you make is dependent upon two things. First the rate of return. On savings accounts, CDs, Bonds, they are typically fixed. However on stocks they vary quite a bit of their life time, sometimes having a positive rate of return and sometimes having a negative rate of return.

The other variable to how much you make, is how much do you invest. The more you invest, the more you can earn, or lose. The difference in money you at the beginning and end of the period of time of an investment is considered the return on investment. Your return may be positive (you make money) or negative (you lose money). Generally, the higher the risk, the more potential for return, as well as loss.

If you put those two elements together, you can see how your investment works, or doesn’t work. If you put in $10,000 and get a 2% return, you make $200. Put in $100 with a 20% return, and you’ll only make $20. So even though you had a much higher return, because you couldn’t invest as much, you didn’t make as much.

Pros

With the rise of Internet Investing firms, there are lots of low fee or no fee investment firms that allow you to buy stocks and bonds with little overhead.

Investing allows you to earn “passive income” i.e. to keep earning without direct constant input from you.

The rise of mutual funds allows you to not have to know as much about direct companies, investing itself, and provides some safety in investing.

Investment gains (especially through dividends and when bonds and CDs mature) can be rolled into more investment, to increase the amount invested.

Cons

As with some Hustler examples, you can lose money, especially as you take on riskier investments hoping to make better money.

You must have “seed” money. That is, you must have a certain amount of money to start with to invest, in order to make any money.

Many investments are long term, so you may not see a return on investment for a while.

Many books/articles on investment quickly go out of date because of changes in the financial environment between rules/regulations, market forces, etc.

Investing in an individual company can take lots of time to research and you may have found you pick a loser, and have to start all over again.

Financial Freedom Types: The Hustler

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One of the easiest things to do, is also one of the hardest. And that is make more money. But that’s exactly what the hustler does.

There are several sub-categories of hustlers in my opinion, each of them has their own merits and detractors. But all of them are focused on making more money.

The basic idea is, if you make enough money, you’ll be financially free.

There are three common ways that people will attempt to make more money.

First, getting a better job. They might get an MBA to qualify for that management position. They might work hard to be the senior sales person, or “job hop” to a new company so that they constantly increase their salary. I worked for my first company right out of college, and increased my salary by almost 50% within the first year by working hard and making the boss look good.

Each of these has their own pros and cons, but eventually they will hit some type of limit. Either because they simply cannot meet with more clients in a day, the company only pays so much, etc.

Second, they work the side hustle. Hustlers are those people who are always working, moving, etc. This means working a side job, whether as a freelancer, a second job, or working one of the popular gig-jobs like fivr, Uber, etc. Some of the people will work to build passive income, that is something that earns you money, even if you aren’t working the job. This could be designing t-shirts on a print on demand company, writing a book to sell on Amazon, etc. Regardless, they’re going to work to bring in extra money.

Finally, the third type is the one you hear people mention a lot, but is actually rare. The people who build a successful company. Think of the Jeff Bezos, or Elon Musks of the world. People will try to tell you it’s simple. Step one, build something that is successful, step two, enjoy being a bazillionaire. Of course, in reality, there are hundreds of steps between the two, and why there are entire books written on the subject of starting a business, but that’s a different story…

So let’s look at the pros and cons of being a Hustler. Because there are different types of hustlers, some of the pros and cons will be specific to some of those types and not others, so please, bare with me.

Pros

Working for a promotion, or changing jobs is one of the easiest things a person can do to earn more money. Especially when you are just starting out. In fact, many people only stay at a job early on for a year or two because you can easily make more money when you are at the floor level. Depending upon the size of the promotion and jump n pay will change how easy or difficult that next jump is.

Because of technology, working in the gig-economy has never been easier. It used to be difficult to break into freelancing, finding clients, having an ability to bill them, but now you can quite easily, and you don’t necessarily need any extra special skills.

This is especially if you are younger, you will find you have energy earlier in your career to make those advancements, to hustle along.

Due to changes in healthcare laws back in 2010, more companies have started offering part time jobs, which means picking up a semi-steady, semi-reliable job is easier than when those jobs were handled by full time personnel.

Due to technology, starting a company is easier than ever before, especially if you have some technological skills. You don’t have to have as much inventory and a large staff to create a workable business.

Cons

Just like with saving, noting can be all positive. So let’s look at some of the hustler cons.

If you are looking at promotions and/or job hopping, you’ll find that as you become more senior, it is more and more difficult to get promoted as there are not as many of those positions. I knew a carpenter who worked really hard as an apprentice, and then got an early jump to journeyman. Unfortunately, there were only about 1/10th the number of journeyman positions open as there were apprentice positions. And the promotion actually cost him work, even though he was scheduled to make more money.

If you are working on a promotion/new job, and it takes a new degree, that slows your progress right out of the gate. Often a new degree will take between one and four years to realize, and a lot of money if you can’t convince your current work to pay for it.

Excessive job hoping is usually looked on negatively by new companies, which means they may not want to hire you. Now the definition of “excessive” varies by industry. In some industries if you are with the same company more than a few years, they begin to wonder about you, but in any company you can run into too much hoping if you are not careful.

There are only so many hours in a day, and you can only do so much hustling. So no matter what you might want, working a full time job and a part time job might be all you can physically do. (Working an additional part time job might be tough depending upon your regular job.) This will negatively affect your attempts in the gig-economy as well as other places, so be mindful of your time.

If you’re “hustling 24/7” are you really “free” or are you working yourself to death without enjoying your life. One has to be careful of taking anything to extremes.

If your hustle type is starting a new company, note that most people have started multiple companies which have failed before succeeding. In fact, most companies who start, are closed within 3 to 5 years, depending upon your industry. Some close even faster than that.

Hustling by creating a company, is often dependent of factors that you cannot control, and thus has a huge risk factor associated with it. Timing is often considered the most important element of any new business, and trying to time something is really difficult. That includes timing when your competitors come after you. Consider MySpace, Friendster, and other… all supplanted over the years. And while Facebook seems like the 800 lbs Gorilla right now, it too could be supplanted in the future…nothing is guaranteed.

Conclusion

For any success, there has to be some hustling involved. Where, and how much is up to you. If you’re willing to assume the risk, it can turn the fastest reward (especially with a good promotion or side job) that will start you on your way to financial freedom.

Financial Freedom Types: Savers

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The first type of financial freedom I want to look at is savers. Mostly because this is the easiest one to implement. However, some may also say it also takes the longest to achieve financial freedom and won’t necessarily make you “rich”.

The saver is the person who creates a budget and sticks with it. This lets them control money instead of letting it control you.

By using a budget, they have money they can put into their savings account and use for either a rainy day, or to make that bigger purchase they want, like vacations, etc.

Because they budget and pay cash (i.e. not take out a loan) for most items, they pay less overall since they are not paying interest on their purchases. This means they typically have strong wills, forgoing impulse buys, because they are delaying their gratification to save, knowing not today, but tomorrow will be better because of it.

They will often shop sales ads, clip coupons, and know what items normally costs and it’s associated value. Because they know the value of an item, they often buy higher quality goods that cost more, knowing purchasing something once is almost always better than buying it again and again when it breaks.

This methodology is often touted by the likes of Dave Ramsey and his crew, as well as books like The Millionaire Next Door, people who belong to the FIRE (Financial Independence, Retire Early) movement, and others.

Pros

The great news is anyone can be a saver. You don’t have to earn a certain dollar amount a year to get to that point. Additionally, you don’t have to have a certain skill, possibly outside of basic arithmetic.

The other pro, is that you can start at any time. My wife and I sat down and budgeted our honeymoon before we were married, so we didn’t go into debt over it. It meant we didn’t go on a fancy trip to Paris, or Hawaii, but we stayed someplace nice, that we could afford, and still had a great honeymoon. It was a nice early on step, and while we only had a little saved, we worked at it, got better, and before long were able to save more.

The more you do it, the easier it is. If you’ve never had a budget, writing one and following one will be hard. But with each month, and each year, it gets easier and easier until you don’t even think about it. It’s just natural. With the other methods, you see coming up, there tends to be some up and down motions that you can’t control.

With each year, because it’s easier to follow, you’ll notice your savings will increase. Sure, a large expense will come up, just as it would with any person, however, you have the money ready for it.

The more money you make, the more you can save. This is where if you are also part hustler, or you have a good paying job, get an unexpected windfall, you are just that much further ahead. But it still works even if you only have smaller salary than others.

Saving is a perfect choice for someone who is risk adverse. As we’ll see in with Hustlers and Investors, they all take risks…risks that could cost them their money and they can’t recover. Saving money by buying frugally and budgeting takes no risks.

Cons

Let’s face it, not everything can be a pro, no matter how much I like it. (And as a saver myself, I like it and have my biases.)

Clipping coupons means you can live within your means and being financially free, but is rarely a way to being wealthy.

Some of your friends might make fun of you for not being willing to splurge on expenses today, because they don’t see a reason to live for tomorrow.

Because you are saving your money, it only grows slowly, especially at first, and especially as you have to pay down and finally off any outstanding debt.

Shopping for the best deal can take time. It takes time to clip coupons, comparison shop, and prepare a weekly meal plan, time that some people don’t want to put into it.

An unexpected major expense can side track your goals. As much as I hate to admit it, bad things sometimes happen. And sometimes they are outside of our control. One bad illness, losing your job, etc, can cause a financial problem that you can’t just budget around. Now as a saver will have a good budget, they should have insurance to help protect and cover problems like a car accident, or getting sick, but that doesn’t necessarily solve all of your issues – but they can minimize them.

The biggest con I see to be a saver, is for those people who take it to an extreme. I personally see this with some people in the FIRE movement, where their sole focus is on saving money, and to keep from spending anything. It causes them to sometimes be too focused, and they forget to have fun, and relax as they’re so focused on having money to retire early. You need to make sure you’re willing to live your life.

Three ways to Financial Freedom

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If you read through many finance books each one will offer you a way to reach “millions” or “financial success”.

Of course, “their way” is the “only way” and all you have to do is follow their method. Unfortunately, the time it takes to write, edit, and publish a book, things often change and that exact way doesn’t work anymore.

With that still, you’ll find that they generally fall into one of three basic categories for helping you reach financial freedom, and I’d like to go over each of them with you.

I’ll then break it down a little further in follow articles talking about the pros and cons of each methodology.

The basics of these three ideas can be grouped into the Hustlers, the Investors, and the Savers.

Savers

Savers are the ones who can control how much they spend. They budget well, and know how to stretch it to get every penny’s worth from that dollar. They control their money, instead of letting it control them, and they do well because of it.

Let’s look at the savers, and how they get to financial freedom.

Hustlers

These are the people who look to earn more income, either through fast track promotions and raises, side hustles, or starting their own business. They’ll simply out earn the standard person and make their money that way.

Let’s look at the hustlers, and how they get to financial freedom.

Investors

Investors look to have their money make money for them. Either through the use of compounding interest (less likely) or investment in stocks, bonds, etc.

Let’s look at the investors, and how they get to financial freedom.

Inherit – is missing

There is two big reasons why inheritance is missing from this list. First, you can’t write about how to inherit money, you’ve generally got to be born into a family with wealth for that. The other option of course is to marry into that type of money, but there you are either in it for a long time, or your goal is to marry someone who is older and you expect them to die soon – this will often lead to legal battles and has various ethical issues which we don’t want to even begin to go into.

However, there is also another big reason you don’t see a lot of books for that – most millionaires (at least in America) didn’t inherit their wealth. In fact, according to Chris Hogan, the author of Everyday Millionaires, less than 10% of millionaires inherit their wealth. And over 70% inherited nothing at all. The rest had to earn it via one or more of these three methods.

That means reaching millionaire status, or some level of financial security, is generally available to most people.

Writing a Check, and Why Its Still Important

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So, there’s this ancient process of sending money, without sending cash, through the mail – it’s called a writing a check. In the old days people wrote them at stores instead of using an Debit or Credit card. People used them to send birthday gifts (maybe you’ve even gotten one from your grandparents) or to pay bills, among other reasons.

While there aren’t as many uses for checks now, there still are some, and they are important to know about.

Businesses are where you will write most checks now a days. Many businesses don’t like credit cards because they are charged a fee for every transaction.

Depending upon the business they are in, it’s typically a set fee (under a dollar) plus a percentage of the transaction. You may find a company that doesn’t let you spend less than $5 or $10 if you use a credit card, like wise some companies will charge you a percentage of your purchase if you use a credit card. (This is illegal in some states, but not all – and funny, the government probably gave themselves a loophole so they can charge your for it.)

Because of this, many people need to have a check to start service where they are setting up a new utilities account, phone, cable, etc. So let’s see how you get checks, and how to use them.

When you opened your first checking account, you got the debit card that you wanted. But when you opened your account, the bank gave you a sleeve to hold your checkbook, your transaction register and your first batch of checks.

This was probably your first inclination to having a check. It might have been that pleasant little surprise, or something that you look at like a child with three eyes.

Depending upon your bank, your starter set of checks might be just a few (like ten), with a new set being mailed to you in the next week or so.

When you receive these checks, make sure all the information on them is correct. This includes your name, and address, which is the most common things to be wrong. Your bank name, routing number and account number will also be on the check. Your bank should have provided you with your account and routing numbers when you opened the account. While it’s rare for those to be wrong, since it comes from the bank, it’s good to verify. 

Please note that just because you have checks, doesn’t mean that you have enough money for the purchase in your account. Be sure to check your account balance before writing any check. We’ll talk about how to make sure you’re only spending what you have in a minute.

Parts of a Check

On the far left of your check is your name and address. On the far right is your check number. Every check will have a different number. This is followed by a line for the date you are writing the check.

The next section is the person or business you are writing the check to. It will say Pay To The Order Of and is followed by a line where you write the name of the person or business you are paying.

At the end of the line you will see a box with a dollar sign. This is where you enter the amount of the check. Be sure to write the number using dollars and cents (i.e. $10.02). To make sure someone doesn’t come in and add an amount, I like to write a dash before and after the numbers so they can’t slip a one in front of my numbers. (i.e. $–10.02–) The bank knows you aren’t writing a negative number, so it’s OK.

Immediately below this section you will write out the amount of the check using words (i.e. ten and 02/100). The word dollars will be at the end of this line.

Now you should see the word “For”. On this line you write what the check was for. If you are paying a bill, you should write the account or invoice number on this line. The line immediately following this line is your signature line. Here you sign your name.

Your routing number is the first set of numbers at the very bottom of your check. Your account number immediately follows your routing number, usually following a : symbol and continues until you see a II symbol.

Once you write a check, make sure you record it in your checkbook’s transaction register. You can learn more about this in our Balancing Your Checkbook post.